On October 22, 2012, the Office of Foreign Assets Control (“OFAC”) issued a final rule amending and reissuing the Iranian Transactions Regulations, 31 C.F.R. Part 560 (“ITR”), as the Iranian Transactions and Sanctions Regulations (“ITSR”). The new ITSR represent a major overhaul of the ITR, particularly with respect to exports of agricultural commodities, medicines, and medical devices to Iran pursuant to the Trade Sanctions Reform and Export Enhancement Act of 2000 (“Ag/Med transactions”). OFAC also issued frequently asked questions relating to the ITSR. The ITSR became effective immediately upon publication.
Implications for Companies Engaging in Transactions with Iran
In some respects, the ITSR alleviate licensing burdens through new general licenses for parties subject to its prohibitions, including U.S. companies and their foreign subsidiaries. However, the ITSR also limit or remove certain existing general licenses. The ITSR do not implement Executive Order 13628 (Oct. 9, 2012), which, among other things, extended the prohibitions applicable to transactions with Iran, the Government of Iran, and Iranian parties by “U.S. Persons” (i.e., entities organized under U.S. laws and their non-U.S. branches; individuals and entities in the United States; U.S. citizens or permanent resident aliens wherever located) to non-U.S. persons owned or controlled by U.S. Persons. (See our Client Alert on Executive Order 13628.) Nonetheless, the ITSR apply to non-U.S. entities owned or controlled by U.S. Persons (as well as to U.S. Persons) as a result of Executive Order 13628.
Highlights of the ITSR
While the ITSR represent many changes to the ITR, the basic prohibitions and structure of the ITR remain unchanged. Below we highlight some of the key provisions in the ITSR, including: new authorizations for Ag/Med transactions; the blocking of the Government of Iran and Iranian financial institutions; new limitations on funds transfers; and the addition and removal of various general licenses and certain licensing policies, among other changes.
Ag/Med Transactions: New Authorized Payment Term
The ITSR add a new authorized payment term for Ag/Med transactions, whether authorized by general or specific license. The ITSR now authorize the use of letters of credit issued by an Iranian financial institution blocked solely pursuant to the ITSR (e.g., not blocked for reasons of terrorism or weapons of mass destruction proliferation), provided they are initially advised, confirmed, or otherwise dealt in by a third-country financial institution that is not a U.S. Person, an Iranian financial institution, or the Government of Iran before being advised, confirmed, or dealt in by a U.S. financial institution. Previously, Ag/Med applicants were required to request and obtain specific authorization to be paid under such letters of credit. These letters of credit are authorized in addition to the three other authorized payment terms for Ag/Med transactions as set forth in ITSR Section 560.532: (1) payment of cash in advance, (2) sales on open account, and (3) financing by a third-country financial institution.
Ag/Med Transactions: New General License for Medicines and Basic Medical Supplies
The ITSR contain a new general license authorizing exports to Iran or the Government of Iran of EAR99 medicines and certain medical devices defined as “basic medical supplies.” Such exports previously required specific licenses under the Ag/Med program.
As regards medicines, the general license is not available for the following: non-NSAID analgesics, cholinergics, anticholinergics, opioids, narcotics, benzodiazapenes, and bioactive peptides. In addition, the ITSR clarify that cosmetics do not qualify as medicines, and thus are not eligible for either a specific or general license under the ITSR.
Medical devices eligible for this general license are included on a List of Basic Medical Supplies. This list represents a limited selection of items from the BIS Illustrative List of EAR99 Medical Devices. The general license does not authorize the export of replacement parts for medical devices.
This new general license is not available for transactions involving the following: medicines and medical devices not falling into the categories discussed above; payment or financing terms other than those specified above; or Iranian military or law enforcement purchasers or importers. Specific licenses are required for such transactions.
Blocking of the Government of Iran and Iranian Financial Institutions
The ITSR implement Executive Order 13599 (Feb. 5, 2012) blocking the property of the Government or Iran, its owned-or-controlled entities, instrumentalities, and entities acting on its behalf, and Iranian financial institutions, including the Central Bank of Iran. (See our Client Alert on Executive Order 13599.) The ITSR clarify the definition of “Iranian financial institution” in Executive Order 13599 by providing examples of banking activities and financial institutions, including money service businesses, insurance companies, and foreign exchange merchants.
New Limitations on Funds Transfers
As under the ITR, ITSR Section 560.405 authorizes certain activities as ordinarily incident and necessary to licensed transactions. The ITSR, however, specifically exclude from this authorization payments or funds transfers as an activity ordinarily incident to licensed transactions; such payments or transfers were not previously excluded from ITR Section 560.405. The changes to ITSR Section 560.405 mean that such payments or funds transfers (including with respect to Ag/Med transactions) must now be authorized by a general or specific license. In this regard, the four payment terms for Ag/Med transactions discussed above are authorized by ITSR Section 530.532. Similarly, payments related to intellectual property protection are now authorized in ITSR Section 560.509(b).
Other New Authorizations and Licensing Policies
The ITSR contain new general licenses and set forth favorable licensing policies for the issuance of specific licenses related to, among others, the following activities:
- A general license, incorporating former General License B (previously available on OFAC's website), for certain noncommercial, personal remittances to or from Iran (ITSR § 560.550).
- A general license for the importation and exportation of services related to conferences in the United States or third countries involving persons who are ordinarily resident in Iran (ITSR § 560.554).
- A general license for undergraduate programs, and a specific licensing policy for graduate programs, authorizing certain Iran-related educational activities in third countries undertaken by U.S. Persons (ITSR § 560.544).
- A general license for the sale of certain real property in Iran and transfer of related funds to the United States (ITSR § 560.543).
- A general license for journalistic activities and establishment of news bureaus in Iran, and a specific licensing policy for the export of related controlled items (ITSR § 560.519), as well as a specific licensing policy for Iranian news organizations’ offices in the United States (ITSR § 560.549).
- A specific licensing policy for projects relating to democracy, human rights, and basic human needs in Iran, and academic and cultural exchange programs (ITSR § 560.545). OFAC also issued a Statement of Licensing Procedure establishing a favorable licensing policy for certain activities carried out by or in connection with U.S. government entities.
A number of general licenses and licensing policies that were included in the ITR are not found in the ITSR including, among others, the following activities:
- General license for the export of insubstantial U.S. content for use in foreign-made products or technology (ITR § 560.511);
- General license for the export of agricultural commodities, pursuant to pre-May 7, 1995 contracts (ITR § 560.520);
- Specific licensing policy for commodities trading and related transactions (ITR § 560.526); and
- Specific licensing policy for the import of Iranian oil in connection with the U.S.-Iran Claims Tribunal (ITR § 560.513).
Other highlights of the ITSR include:
- ITSR Section 560.203(b) incorporates the statutory prohibitions on causing a violation of the ITSR or a conspiracy to violate the ITSR.
- Notwithstanding the new prohibitions in the ITSR, specific licenses issued pursuant to the ITR before February 6, 2012 remain valid pursuant to ITSR Section 560.502(d), which incorporates former General License A (previously available on OFAC's website).
- ITSR Section 560.425 incorporates the interpretation, previously found in published OFAC guidance, that entities 50% or more owned by blocked parties are themselves blocked parties, even if they are not explicitly listed on OFAC’s List of Specially Designated Nationals and Blocked Persons.
- ITSR Section 560.426 prohibits charitable contributions to the Government of Iran, Iranian financial institutions, or any other parties blocked pursuant to the ITSR.